Aldi considering direct sourcing for own label

As Aldi looks to increase its range of products and add extra services in order to secure a greater average basket size and attract a broader mix of consumers it runs the risk of complicating its business (see earlier column).

The simplicity of its limited range and basic utilitarian customer offering is a key component of its low cost model that also ensures it achieves its necessary margins. Adding products and services undoubtedly introduces the risk of extra costs that can reduce these margins.

In its drive to add lines while also maintaining its profitability Aldi is investigating the sourcing of own label products directly from the manufacturers. For unbranded goods the retailer has typically used third-party distributors and importers around the world.

In order to increase its range and volumes while also retaining those margins it is looking at working directly with producers in emerging and developing markets. Aldi clearly purchases branded goods direct from the large FMCG manufacturers but this has not been the case for its private label lines.

Such a move highlights how seriously it is taking its ongoing drive towards expanding its range and that it acknowledges the risks of doing so could impact adversely on its profitability. This investigation into direct sourcing in new emerging markets represents another warning to the large grocers that Aldi is deadly serious about taking more market share from them.

Glynn Davis, editor, Retail Insider